Fed's rate cut anticipated for this year, according to Bessent, with 'significant likelihood'
Federal Reserve Rate Cut Likelihood Soars to 90%
The Federal Reserve is gearing up for a potential interest rate cut, as the likelihood of a 25 basis points reduction in September has risen to approximately 90%, according to the CME FedWatch tool.
In a recent statement, Federal Reserve Chair Jerome Powell affirmed that the central bank is well-prepared to respond to any deterioration of economic conditions. This affirmation comes after the weaker-than-expected July jobs report, which rekindled the market's hopes of a September rate cut.
The July jobs report also included large downward revisions to May and June, cutting 258,000 jobs from the previously announced estimates for those months. Despite the labor market remaining in a solid shape with a 4.2% unemployment rate, the report showed just 73,000 jobs created last month, well below the 110,000 estimate of economists polled by LSEG.
Treasury Secretary Scott Bessent, in a statement on Fox News' "Special Report with Bret Baier," emphasized that price increases stemming from tariffs may just be a one-time price increase. However, he expressed dissent with the Fed's view on tariffs' impact on the economy, stating that it lacks logic.
Scott Bessent also expects the Federal Reserve to follow the market's lead in making interest rate decisions. The market is currently betting that the Federal Reserve will cut rates by 25 basis points when it holds its next meeting in mid-September, with an 89.4% probability according to the CME FedWatch tool.
Inflationary pressures have been relatively modest, according to Scott Bessent. The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) index, has risen from 2.1% in April to 2.6% in June. Meanwhile, inflation, as measured by the consumer price index (CPI), has risen from 2.3% in April to 2.7% in June. Despite this, the Fed has not made any interest rate cuts due to stubborn inflation that has remained above its 2% longer-run target.
In summary, the Federal Reserve is poised for a potential interest rate cut, with the likelihood of a 25 basis points reduction in September soaring to approximately 90%. This decision comes in response to a weaker-than-expected jobs report and ongoing inflation concerns. The market, in turn, is strongly favoring this move, with the Fed preparing for easing amid moderated economic growth.
- The Federal Reserve's decision to potentially lower interest rates in September could be influenced by the current market sentiment, as revealed by Treasury Secretary Scott Bessent in a statement, stating that the market is betting on a 25 basis points reduction with an 89.4% probability.
- Inflation, as measured by both the consumer price index (CPI) and the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) index, has been moderately rising; however, it remains above the Fed's 2% longer-run target, suggesting ongoing inflation concerns.
- The weaker-than-expected July jobs report, which included large downward revisions to May and June figures, as well as the creation of just 73,000 jobs last month, may have strengthened the Federal Reserve's resolve to respond to potential economic deterioration, as affirmed by Chair Jerome Powell.
- As the Federal Reserve prepares for a potential interest rate cut in light of the weaker jobs report and ongoing inflation concerns, the timing of this decision could have significant implications for businesses, finance, politics, and general-news markets, potentially impacting both the domestic and international economies.
